IFS Has A Magic Growth Formula; But What About Profitability?
In November, IFS Industrial & Financial Systems,
a business applications vendor with main headquarters in Linkoping, Sweden,
reported results for Q3 2000 (See Figure 1). IFS' net sales for the first
nine months increased by 22%, to $161.7 million, compared with $133.1
million for the corresponding period in 1999. License sales rose by 92%
to $64.4 million during the first nine months of 2000, with a license
revenue increase of 106% to $11.4 million during the third quarter. Consulting
revenue further increased dismally though during the third quarter, growing
by 6% to $27.0 million, compared with $25.5 million for the corresponding
period in 1999. However, IFS reported a loss of $18.6 million after net
financial items, compared with a loss of $ 11.8 million for the first
nine months of 1999. The third-quarter loss amounted to $12.5 million,
compared with a loss of $10.9 million for the third quarter of 1999.
Nilsson, president and CEO of IFS, commented, "We are pleased with the
significant increase in license sales in the third quarter. Results for
the third quarter are always considerably affected by vacation periods
throughout Europe. However, the market is recovering strongly, particularly
in the US. The positive consulting margins in September are evidence of
better utilization of our consultants. With our consulting organization
intact, we are well equipped to meet growing demand for IFS products and
services. While we still aim to report a positive net earnings result
for 2000, the late recovery of the market will make it difficult to achieve
this goal. Our continued investment in product development has enabled
us to remain in the forefront in terms of technology. An increase in sales
of over 106% in the third quarter speaks for itself. IFS Applications
2001, our new product release that includes a wide array of e-business
components, has met with an enthusiastic reception."
was particularly pleased to announce strong momentum in the North American
market with the last quarter producing the best performance to date in
number and value of contracts in the United States. From July through
September, the company closed deals valued at more than $20 million in
products and services with 20 customers, predominately in the mid-sized
manufacturing market segment.
North America President and Chief Executive Officer Terje Vangbo commented,
"This strong performance is further evidence that our component-based
solution is gaining ever increasing acceptance among enterprises that
need to evolve their operations one step at a time into e-business. With
the North American market rebounding from the industry-wide slowdown of
1999, IFS is seeing not only an increase in the number of deals, but in
the size of the deals as well. I believe IFS will continue to emerge as
a business solutions leader in North America, particularly with the recent
release of IFS Applications 2001 software. With its proven component technology,
we expect IFS Applications 2001 to set the pace in the U.S. for e-business/supply
chain integration. It will be difficult to match our solution with its
integration capabilities, unlimited scalability, and new off-the-shelf
newest U.S. customers represent a diverse range of industries, including
plastics, automotive, fiber optics, civil aviation, electronic components,
steel, and wood products.
have only praise for IFS' fast growth and international expansion. Its
formula for success seems simple, although apparently not easily emulated
- a flexible
and technologically superior componentized product
- a comprehensive
feature-rich vertical functionality
- a number
of standard APIs or XML-based interfaces
customer service & support
acquisitions and/or partnering moves in the past
at the lower end of the market segment and in regions where IFS has a
strong presence (e.g., Nordic Region), it represents a generally low-cost,
but viable option.
North American business unit, with headquarters in Tucson, AZ achieved
very impressive results - a 234% revenue increase over the same period
of last year - IFS' track record of successful regional implementations
is still being made. Currently it is at the level of a couple of hundred
customers. These results are crucial for the following two reasons: 1)
to build the company's mind share in the world's most prospective business
applications market, and 2) to show that the heavy investments IFS has
made in North America over the past several years have begun to pay dividends.
Although a newcomer in the North American market, IFS shows promise with
a component-based product that enables it to more feasibly integrate traditional
ERP with e-business, CRM and other extended-ERP applications. The company
will also likely pursue the opportunity of preying on the customer base
of currently struggling or all but vanished vendors.
the availability of its new release, IFS Applications 2001, in August
2000. This release included 500 major product enhancements and the addition
of 10 new modules. IFS Applications 2001 includes web-based components,
Internet storefronts, customer relationship management (CRM) applications,
connectivity to other business applications, and collaboration with process
control systems with a variety of e-commerce engines. IFS Applications
offers over 50 functional business components for improving business processes
in medium-to-large size companies. Some major enhancements were:
integrated CRM Solution with Sales & Marketing, Call Management, Sales
Configurator and WEB Store.
implemented for the whole IFS Application product suite.
manufacturing with support for Kanban.
Business Performance solution with Data Warehouse and Cube configurator
presence in 42 countries, the challenge of further international expansion
and brand awareness remains. The perception of poor scalability and less-than-global
presence within the higher-end of the market are the hurdles yet to be
overcome. There is also room for improvement in its currently undeveloped
indirect channel, which has been a major success factor for other companies
in the mid-market. Moreover, one should closely watch IFS' future profitability
track. The company has posted five losing quarters out of the last six
(See Figure 1), and its shareholders' confidence may deteriorate until
they see a more consistent profitable performance. The mitigating factor
in this regard is IFS' solid current stockholders equity.
IFS' customers should certainly consider the new product offering, but
avoid selecting it without looking at what the other vendors have to offer.
We encourage users to familiarize themselves with the company's ambitious
new products offerings and their availability, at least to better leverage
their negotiating position with other vendors involved in a particular
selection exercise. We generally recommend including IFS in a long list
of an enterprise application selection to mid-market and low-end tier
1 companies (with $50M-$1B in revenue) within its industries of focus.
IFS worldwide has identified eight key vertical markets which are: aerospace
& defense, telecommunications, repetitive/automotive, engineering and
project delivery, internet entrepreneurs, service management, energy and
utilities, and forest segments. In the USA, however, the focus is on only
the first six verticals mentioned.
is also a good candidate for technologically aggressive organizations
that need a highly configurable solution. Remotely hosted Internet solutions
may offer cost effective applications to small or mid-sized organizations,
bearing in mind the ramifications of any necessary customizations.
and potential users may want to inquire about the company's plans regarding
Internet marketplaces in their respective industries. While the upgrade
to its technology platform, called Foundation 1, is expected
to make it easier to connect the components within the IFS Applications
suite to the Internet as well as to third-party applications, and the
new platform makes use of XML and industry specific communication standards
such as those from RosettaNet, being all things to all people is
very difficult. Therefore, users need to ask the following questions:
which specific market places does (or will) IFS connect with, and what
methodology does (or will) the company prescribe to.
clients should conduct preliminary research on industry expertise and
reference sites of a regional IFS office or an affiliate service provider
when IFS is included in the selection process due to its nascent distribution
network outside of the European market. As with all new releases, users
should employ a critical approach in their evaluation of IFS and require
the vendor to demonstrate specific business processes. Though demonstrations
do not guarantee a trouble-free implementation, they can go a long way
toward helping users understand how the software might behave in their
environments. Also note that release 2001 is scheduled to be available
in the USA only in March 2001.
This article has been modified from its original form since the original